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Month: January 2014

Country’s New Taxes on Sugary Drinks, Junk Foods Have No Impact on Expansions

Two of the world’s largest drink and snack makers are pouring billions of dollars into their Mexican operations, sending powerful signals the country is too lucrative to avoid despite hefty new “fat” taxes on sugary drinks and high-calorie snacks.

U.S.-based PepsiCoInc.—which sells Sabritas chips, GamesaGAM.MC +2.70%cookies and its Pepsi-Cola soda in Mexico—said on Friday it will invest $5 billion over the next five years to boost manufacturing, product development and marketing in Latin America’s second-most-populous country.

Switzerland’s Nestlé SA, NESN.VX -0.15% the world’s largest food manufacturer by revenue, said separately that it will spend $1 billion to build an infant nutrition factory in western Mexico and a pet food factory in central Mexico. It is also expanding a breakfast cereal factory to make Cheerios and Nesquik.

The major investments come despite Mexico’s introduction on Jan. 1 of an 8% tax on high-calorie foods like potato chips, chocolate and ice cream and a roughly 12% tax on soda. Mexico says seven in 10 adults and a third of the country’s children are overweight or obese.

The government’s aggressive move has fanned concern among food and beverage companies that other countries could follow suit. Three other Latin American countries—Peru, Uruguay and Costa Rica—have already banned so-called junk foods from public schools since 2012.

But many companies continue to see Mexico as a major source of growth amid slowing sales in other parts of the world. Mexico’s government is projecting the country’s economy will expand 3.9% in 2014, up from 1.3% last year, amid signs consumer spending is rebounding.

Nestlé Chief Executive Paul Bulcke said the investment reflects “our commitment to Mexico, and our long-term vision in a market with high growth potential.”

Foreign direct investment in Mexico soared to $28.2 billion in the first nine months of 2013 compared with $15 billion in all of 2012. Much of the jump was tied to Belgian brewer Anheuser-Busch InBev NV’s takeover of leading Mexican brewer Grupo Modelo SAB. U.S. snack maker Mondelez International also began construction last year of what it said would be the world’s biggest cookie factory, with a $350 million investment. The factory will open in the second half of this year, the company said.

Mondelez has said the new taxes aren’t affecting construction of its factory. Soda giant Coca-ColaCo. said it’s not altering its five-year, $5 billion investment plan in Mexico that runs through 2014 but wouldn’t comment on future plans.

PepsiCoPEP +1.07% and Nestle declined to say how the new taxes, which include a 16% sales tax on processed pet foods beginning this month, affected their investment planning. Both said on Friday they remain bullish on Mexico.

“We see tremendous opportunities to further expand our food and beverage business,” PepsiCo Chairwoman Indra Nooyi said in a statement, adding the company “is confident in Mexico’s future.”

Mexico was PepsiCo’s third-largest country in 2012 by revenue, behind only the U.S. and Russia, with $4 billion or 6% of the company’s $65.49 billion in global sales. Mexico is Nestle’s sixth-largest market, with sales of 3.25 billion Swiss francs ($3.64 billion) in 2012.

Food and drink companies appear to be passing the new taxes on to Mexican consumers. Soda prices rose 11.4% in the first half of January, almost the same as the 12% soda tax. Meanwhile, taxes on sweet snacks including cookies rose roughly 6% over the same period, almost in line with the new 8% tax.

John Faucher, an analyst with J.P. Morgan, said in a note this week that the impact of the new taxes on PepsiCo’s snacks and beverage business in Mexico “remains opaque” but predicted it would crimp volume growth.

JAKARTA – After a four-month-long pitch process, Tupperware has retained homegrown agency Fortune Indonesia as its advertising agency in Indonesia.

The decision comes after Tupperware called a pitch in September, which saw Fortune Indonesia face off against several multinational and local agencies including Rise Indonesia, Edelman and Dwi Sapta, said Hany Nurahmawati, the agency’s marketing and communications manager.

Last year Indonesia replaced Germany as the biggest market for Tupperware products. The company, which operates a direct sales force model comprised mostly of homemakers, has more than 200,000 people pitching its products in the country.

For Tupperware, like many other countries, Indonesia and other emerging markets are important, as growth in mature markets including the US has slowed. In fact, emerging markets contribute more than 60% of the firm’s business.

This article was written by Dr. Ngozi Okonjo-Iweala, Coordinating Minister for the Economy and Minister of Finance of Nigeria. She has also previously worked at the World Bank.

On Jan. 16, Nigerian President Goodluck Ebele Jonathan launched the Nigeria Mortgage Finance Company (NMRC), signaling the beginning of a process that would finally increase opportunities for Nigerians to own homes at an affordable price. The process will also involve the reinvigoration of mass housing initiatives which will, along with the NMRC, give the housing sector the necessary stimulus to start realizing its great potential for the good of the country.

But it is not only individual Nigerians who will benefit from the establishment of the NMRC and the Jonathan administration’s stronger focus on mass housing. The country as a whole will also gain significantly from the unleashing of a sector with the capacity to transform the entire economy through millions of direct and indirect jobs as well many other ancillary benefits. To appreciate the significance of this, let us consider a few facts:

Nigeria’s significant housing demand has been estimated at 17 million, with an additional 2 million units needed every year. Labor impact assessment studies in countries with similar demographics and economies as Nigeria, estimate that at least 5.62 direct jobs can be generated with every new home, and 2.48 indirect jobs in housing-related expenditures. So far, our country has yet to realize this potential. In 2012, housing, construction and real estate accounted for only 5.54 percent of our GDP. This figure is low in comparison to many other developing countries. Addressing the housing deficit will have a game-changing impact on our society and our communities.

Globally, there is a strong consensus that the development of the housing sector is important for stimulating economic growth and job creation in any economy. Indeed, housing construction is one of the most used indices for gauging the economic situation in most developed countries. The S&P/Case-Schiller Index, which is used to monitor housing starts in the U.S., is a good example. Likewise, in Malaysia, one of the main contributors to the country’s 8 percent per annum three-decade-long GDP growth were its housing and construction sectors. New-home construction is a major generator of jobs through direct employment in the construction industry, with significant multiplier effects on other sectors of the economy. This is the kind of potential that the launch of the NMRC and related initiatives is set to unlock.

This explains why President Jonathan made the housing sector a priority in his Transformation Agenda. As a practical expression of this focus, he directed in May 2012 the convening of a major presidential retreat on the housing sector that brought all stakeholders together to discuss issues of land titling and land administration foreclosure policies, access to affordable housing finance and cost of construction materials, among others. The second event was a roundtable on housing finance, which the president instructed me to convene in November 2013. This was attended by banks, development finance institutions, private sector players, and public sector partners like the Ministry of Lands, Housing and Urban Development, and the Federal Mortgage Bank — to review and analyze the potential for housing finance in Nigeria and see how to overcome trenchant obstacles.

A major outcome of the roundtable was the setting up of a housing finance committee chaired by the Federal Ministry of Finance, and comprising the Federal Ministry of Lands Housing and Urban Development, the Central Bank, Nigerian mortgage and commercial banks, supported by the World Bank and the IFC. The committee was mandated to take forward the work of developing a facility that would significantly scale up access to affordable mortgages for the Nigerian people.

The outcome of the committee’s work was the recommendation to set up the Nigeria Mortgage Refinancing Company to significantly increase the liquidity available to mortgage organizations such as primary mortgage institutions (PMIs), banks, housing microfinance institutions and other financial actors.

The NMRC is a public-private sector initiative with majority shareholding by the private sector. The federal government is a sponsor and also a shareholder. It is backed by a World Bank zero-interest credit of $250 million with a 40-year tenor and 10 years of grace, a very attractive facility. The NMRC will further float an additional 50 billion naira ($314,700,000) in bonds as soon as it is operational, to which institutional and other investors can subscribe. Further bond issuances will take place in a phased manner to significantly boost NMRC’s resources and liquidity for purchase of bundled mortgage products from PMIs and other institutions.

The launch of the NMRC and the initiative to open up the housing sector also involves efforts to improve land titling and land registration, speed up governors’ consent, improve Foreclosure policies – all of which presently poses impediments to the proper functioning of the Housing Sector. Many states are active in housing development and have put in place supportive policies. However, the advent of the NMRC hugely expands the horizon of what can be achieved. As such, 14 pilot states and the Federal Capital Territory (FCT) are working closely with the Federal Government on this initiative. Once they fulfill laid-down criteria in putting in place appropriate policies, their citizens stand to benefit from greater access to affordable mortgages.

The governors of Abia, Anambra, Bauchi, Bayelsa, Delta, Gombe, Kano, Kaduna Lagos, Edo, Enugu, Ondo and Ogun States and FCT have signed on to work on the housing initiative.

An important component to the launch of the NMRC is the development of mass housing schemes by private developers working with the Federal Mortage Bank of Nigeria and other institutions. Some of the mass housing will be done on a rent-to-own model that will allow low-income participants to rent a home over 15-20 years and own the property at the end of that period.

The new approach to the housing market is expected to result in thousands of new mortgages at low double to high single digit interest rates. This will hinge on maintaining a stable macroeconomic environment with low-single-digit inflation — a feat the country has shown over the past few months that it can achieve.

The launch of NMRC and enhanced housing initiatives will have significant multiplier effects on many sectors of the economy, unleashing jobs for architects, builders, plumbers, welders, carpenters, painters, interior decorators, furniture manufacturing and other allied smal- scale industries.

We know we lack many of the skills listed above in sufficient quantity and quality and often recruit them from neighboring countries. We must now position ourselves to train our youth for those skills. President Jonathan has instructed the Federal Ministry of Lands and Housing working with private-sector developers and the education ministry to embark on this endeavor.

Nigeria stands at the cusp of a brave new initiative that has transformative powers for the individuals and families impacted as well as for the nation. An initiative that is both social in its scope and deeply economic in its impact. It is left to us to grasp these opportunities and working together as both public and private sectors unlock an important door for our economy.

In 2001 the world began talking about the Bric countries – Brazil, Russia, India and China – as potential powerhouses of the world economy. The term was coined by economist Jim O’Neill, who has now identified the “Mint” countries – Mexico, Indonesia, Nigeria and Turkey – as emerging economic giants. Here he explains why.

So what is it about the so-called Mint countries that makes them so special? Why these four countries?

A friend who has followed the Bric story noted sardonically that they are probably “fresher” than the Brics. What they really share beyond having a lot of people, is that at least for the next 20 years, they have really good “inner” demographics – they are all going to see a rise in the number of people eligible to work relative to those not working.

This is the envy of many developed countries but also two of the Bric countries, China and Russia. So, if Mexico, Indonesia, Nigeria and Turkey get their act together, some of them could match Chinese-style double-digit rates between 2003 and 2008.

Something else three of them share, which Mexican Foreign Minister Jose Antonio Meade Kuribrena pointed out to me, is that they all have geographical positions that should be an advantage as patterns of world trade change.

For example, Mexico is next door to the US, but also Latin America. Indonesia is in the heart of South-east Asia but also has deep connections with China.

And as we all know, Turkey is in both the West and East. Nigeria is not really similar in this regard for now, partly because of Africa’s lack of development, but it could be in the future if African countries stop fighting and trade with each other.

This might in fact be the basis for the Mint countries developing their own economic-political club just as the Bric countries did – one of the biggest surprises of the whole Bric thing for me. I can smell the possibility of a Mint club already.

What I also realised after talking to Meade Kuribrena, is that the creation of the Mint acronym could spur pressure for Nigeria to become a member of the G20, as the other Mints already are.

This was something the charismatic Nigerian finance minister, Ngozi Okonjo-Iweala was keen to talk about: “We know our time will come,” she said. “We think they are missing something by not having us.”

Meade Kuribrena went so far as to suggest that, as a group of four countries, the Mints have more in common than the Brics. I am not sure about that, but it is an interesting idea.

Economically three of them – Mexico, Indonesia and Nigeria – are commodity producers and only Turkey isn’t. This contrasts with the Bric countries where two – Brazil and Russia – are commodity producers and the other two – China and India – aren’t.

In terms of wealth, Mexico and Turkey are at about the same level, earning annually about $10,000 (£6,100) per head. This compares with $3,500 (£2,100) per head in Indonesia and $1,500 (£900) per head in Nigeria, which is on a par with India. They are a bit behind Russia – $14,000 (£8,500) per head – and Brazil on $11,300 (£6,800), but still a bit ahead of China – $6,000 (£3,600).

A big question that guided my thinking on visits to these countries for the BBC was – “How do these countries actually feel on the ground, compared to my own expectations and the general consensus of opinion?”

When expectations are low – as one might generally say about Nigeria for example (although not in recent years among specialist investors in Africa) – it is easier to be positively surprised.

But the opposite is also true – and this could be a problem for Mexico, which financial investors are really quite excited about.

I returned from my travels thinking it won’t be so difficult for Nigeria and Turkey to positively surprise people, as many put far too much weight on the negative issues that are well-known – crime and corruption in Nigeria, for example, or heavy-handed government in Turkey.

Indonesia, I am less sure about. The country’s challenges are as big as I thought and I didn’t hear too many things that made me go “Wow” in terms of trying to deal with them. The country needs more of a sense of commercial purpose beyond commodities, and has to improve its infrastructure.

In Turkey, visits to white goods manufacturer Beko and Turkish Airlines, the world’s fastest growing airline, definitely made me go “Wow”, and in Nigeria, I was saying it all the time.

The creativity in that place is so easy to get enthused about, at least it was for me, and I returned full of excitement about different personal investments I might follow up on.

In Mexico I was all set to be disappointed, as expectations are so high, but the young president and his equally young colleagues are full of determination to change the place.

If you thought Maggie Thatcher stood for serious reforms, these guys make her seem like a kitten. They are reforming everything from education, energy and fiscal policy to the institution of government itself.

What about all the challenges and things that usually scare people? Well corruption is obviously one topic that all four would seem to share, and I had many interesting discussions about it in each country.

In Nigeria, Central Bank Governor Lamido Sanusi argued that corruption rarely prevents economic development – and that the growth of the economy, accompanied by improvements in education, will lead to better governance and greater transparency.

Such views are important to listen to, as an alternative to our often simplistic Western way of thinking. For many credible people in the Mint countries, corruption is a consequence of their weak past, not a cause of a weak future, and certainly not the number one challenge. It falls way down a list compared with the costs of energy and the breadth of its availability and, of course, infrastructure.

Sorting out energy policy was seen in both Mexico and Nigeria as a top priority and each country has launched a major initiatives this year, which if implemented, will accelerate growth rates significantly.

Here is an amazing statistic. About 170 million people in Nigeria share about the same amount of power that is used by about 1.5 million people in the UK. Almost every business has to generate its own power. The costs are enormous.

“Can you imagine, can you believe, that this country has been growing at 7% with no power, with zero power? It’s a joke.” says Africa’s richest man, Aliko Dangote.

He’s right. I reckon Nigeria could grow at 10-12% by sorting out this problem alone. That would double the size of its economy in six or seven years.

In Indonesia, the fourth largest country in the world, I would say leadership and infrastructure are the major challenges, though there are many more too. But challenges and opportunities sit side by side.

In one of Jakarta’s slum areas, Pluit, the land is sinking by 20cm per year because of over-extraction of water, but property prices elsewhere in the city are rocketing.

I talked to a man building the country’s first Ikea store, who reckons a third of greater Jakarta’s population of 28 million (the third biggest conurbation in the world) would have sufficient disposable income to shop at his store. As he said: “We just know it’s going to work.”

In Turkey of course, its politics and the combination of a Muslim faith with some kind of desire to do things the Western way is a unique sort of challenge. Some might argue the same challenge exists for Indonesia but I returned thinking this was not the case. In Jakarta at least, the Western way of doing things seems to be generally accepted – in striking contrast with Turkey.

So can the Mints join the top 10 largest economies in the world, after the US, China, the rest of the Brics and maybe Japan?

I think so, though it may take 30 years.

I look forward to going back to each of them more regularly now I am helping to put them on the map, just as happened with the Bric countries 12 years ago.